Economics Essay 59: Protectionism

 Explain the main ways in which countries can protect their domestic industries from foreign competition.

Countries can employ several measures to protect their domestic industries from foreign competition. The main ways in which such protection can be achieved include:

1. Tariffs: Tariffs are taxes imposed on imported goods, making them more expensive compared to domestically produced goods. By levying tariffs, countries can increase the price of imported products, making them less competitive and protecting domestic industries. Tariffs can be specific (a fixed amount per unit) or ad valorem (a percentage of the product's value).

2. Import Quotas: Import quotas place a limit on the quantity of a particular product that can be imported into a country. By restricting the quantity of imports, domestic industries are shielded from foreign competition, ensuring that they have a larger share of the domestic market. Import quotas are often used to protect sensitive industries or to safeguard national security interests.

3. Subsidies: Governments can provide financial assistance or subsidies to domestic industries, making their products more competitive in the market. Subsidies can be in the form of direct payments, tax breaks, or low-cost loans, reducing production costs and enabling domestic industries to offer lower prices or invest in research and development.

4. Regulatory Barriers: Governments can impose regulations, standards, or licensing requirements that foreign producers must meet to enter the domestic market. These regulations may create additional costs and barriers for foreign competitors, providing an advantage to domestic industries that are already compliant.

5. Intellectual Property Protection: Strong intellectual property rights and enforcement mechanisms can safeguard domestic industries by preventing unauthorized use or replication of their proprietary technologies, processes, and inventions. This protection encourages innovation and provides a competitive advantage to domestic firms.

6. Government Procurement Policies: Governments can implement policies that prioritize the purchase of goods and services from domestic suppliers. By giving preference to domestic industries in government procurement contracts, countries can stimulate demand for domestic products and support local businesses.

7. Exchange Rate Manipulation: Governments may manipulate their exchange rates to gain a competitive advantage. By intentionally devaluing their currency, countries can lower the price of their exports, making them more attractive to foreign buyers and potentially reducing the competitiveness of imports.

It is important to note that while these protectionist measures may offer short-term benefits to domestic industries, they can have negative consequences in the long run. They can distort market forces, hinder international trade, and lead to retaliation from trading partners, potentially escalating trade tensions.

Countries often implement protectionist measures to support infant industries, protect national interests, or promote economic development. However, striking a balance between protection and the benefits of open trade is crucial for long-term economic growth and global cooperation.

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Oxbridge bashing is an empty ritual if we ignore wider social inequities

Priyamvada Gopal in The Guardian

The numbers are clearly unacceptable. Several colleges in both Oxford and Cambridge frequently admit cohorts with no black students in them at all. Roughly 1.5% of total offers are made to black British applicants and more than 80% of offers are made to the children of the top two social classes. With offers made overwhelmingly to those in London and a handful of the home counties, both universities are consistently excluding entire ethnic and regional demographics. They also continue to admit a grotesquely disproportionate number of privately schooled students. In effect, the two ancients are running a generous quota scheme for white students, independent schools and the offspring of affluent south-eastern English parents. 

There is undoubtedly a great deal that both institutions can and must do to remedy this. Our admissions processes at Cambridge are not sufficiently responsive to the gravity of the situation. Despite periodic panics in response to such media “revelations” or staged political scolding, and notwithstanding the good intentions of many involved in admissions, questions of diversity and inclusion are not taken seriously enough in their own right.

The focus on educational achievement, itself defined in purely numerical terms and worsened by internal league tables, means there is little sense of meaningful diversity as an educational and community good in its own right. Despite having contextual indicators that would allow us to diversify our admissions, we balk at non-traditional attainment profiles for fear that the student will not be able to cope once here.

For any Oxbridge college to not have a single black student at any given point in time, where they would rightly not tolerate having low numbers of women, is not just about looking institutionally racist but also impoverishes the educational and social environment we provide. The same holds true for regional and class exclusions.

When I first came to Cambridge in 2001, having taught at different institutions in the US, I was struck by the relative whiteness and sheer cultural homogeneity of this university. Even the minimal improvements I’ve seen since then in some years – more students from ethnic minority backgrounds, more young women from northern comprehensives – have made a huge difference both to me as a teacher and, more importantly, to what students are able to learn from each other.

Not all of them will get first-class marks, but they both gain a lot from and have a great deal to give to the educational environment here, not least by expanding the definition of what counts as achievement. We need more of them. (At Cambridge, in recent years, a quantum of vocal BME students as well as students from northern comprehensives has demanded change, often to good effect. There is some cause for hope.)

There is also undoubtedly a culture of denial when it comes to matters of race and racism, which students speak of both in class and privately and which I have experienced when I’ve tried to draw attention to them. And more than one student from northern comprehensives has told me about being discouraged by teachers from applying and feeling amazed to have received an offer only to feel alienated by the stultifying class conformity of the affluent south-east once they get here.

It is simply not good enough for Oxford and Cambridge to say that they are welcoming of diversity and in effect blame certain demographics for not applying despite their outreach programmes. It is Oxbridge that must change more substantially to provide a better environment for a diverse student body. The two ancients must be held to account; homogeneity must fall.

But should they be the only ones held to account? In having a necessary conversation about elitism and exclusion, are we forgetting – or being encouraged – to not have a larger one about wider deprivation and systemic inequality? It is striking that some quarters only too happy to periodically attack Oxbridge for its failings, from rightwing tabloids to Tory ministers, are rarely interested in the roots of inequality and lack of opportunity of which Oxbridge exclusion is a symptom but is hardly the origin.

We should be careful that a headline-friendly focus on these two institutions alone does not become an easy way to avoid even more painful and challenging questions. It seems somewhat selective and inadequate to focus on what David Lammy rightly calls “social apartheid” at Oxbridge without discussing the widespread and worsening economic apartheid in this country.

We know that access to university education in general is sharply determined by school achievement that, in turn, is shaped by parental income and education levels. In an economically stratified society, it is inevitable that most young people from economically deprived backgrounds have a substantially lower chance of achieving the kind of marks that enable access to higher education.

Hence it is incoherent to have a discussion about access to higher education without having one simultaneously about economic disadvantage, which, in some cases, including British Caribbean and Bangladeshi communities, has an added ethnic minority dimension to it. In a context of worsening economic fault lines, there’s a whiff of something convenient about only attacking the admissions failings of top universities.

The other obvious missing dimension to this discussion is the existence and encouragement for independent schools. It’s somewhat contradictory to encourage a market culture where money can buy a deluxe education and then feel shocked when the well-off get their money’s worth by easily meeting the requirements for offers from high-status institutions. It’s worth saying that as long as independent schools, hardly bastions of ethnic diversity, exist, there will remain a fundamental apartheid between two kinds of students.

Oxbridge, or even the Russell Group of universities more broadly, can only do so much to mitigate this state of affairs, which lifting the tuition fee cap will only worsen. Lammy notes that more offers are made to Eton than to students on free school meals.

But why not also question the very existence of Eton and the lamentable state of an economic order that necessitates free school meals for many? Add to this the parlous condition of state education with its chronic underfunding, inflated classroom sizes, an undermining testing and target culture and difficulties in recruiting and retaining good teachers.

The same politicians who rightly point to Oxbridge’s demographic narrowness are rarely willing to grasp the nettle of a two-tier educational structure in which some are destined to do much better than others. Who, for instance, would be willing to call for the abolition of private schooling, subject as such a suggestion would be to shrill denunciations about how individual choice, personal aspiration and the workings of the market are being interfered with?

There are other tough discussions that could be had if the aim truly is to address and undo inequalities in university demographics. Would politicians and institutions be willing, for instance, to impose representational quotas for both ethnic minorities and state-educated students that reflect the national pie-chart?

Currently, the Office for Fair Access (Offa) makes some toothless demands around “widening participation”, a rather feeble phrase, which are not accompanied by penalties for failure. Lammy, whose suggestion that admissions be centralised has some merit to it, not least towards undoing the unhelpful internal collegiate caste system at Oxbridge, has made also a comparison between Oxbridge’s abysmal intake of black students and Harvard’s healthy numbers.

Would the political and intellectual classes be willing to have a discussion about something like “affirmative action” in the US, a process of “positive discrimination” by which underrepresented ethnic minorities and disadvantaged groups are given special consideration? We must hope so. For failing a wide-ranging discussion aimed at radical measures, all the huffing and puffing about Oxbridge is destined to remain a yearly ritual, each controversial headline simply making way for the same unsurprising headlines every year.

The politics of quota and merit

Suhrith Parthasarathy in The Hindu

There is unquestionable value in a general policy of reservation because it attacks caste-based inequities that have proved so damaging to our society; but through an ever-expanding scheme of reservation, we have lost sight of what our aims were in the first place

The Bharatiya Janata Party’s election manifesto, released on April 7, 2014, and its opponents’ reaction to the proposal, exemplifies the level of political debate in India today. In spite of an element of truth in claims that the manifesto is an impressionist’s version, the document nonetheless departs on certain crucial, philosophical issues. But, such is our reluctance to engage on matters of first principle that these departures are rarely, if ever, contested with anything resembling an intellectual vigour. Take, for instance, the issue of reservation. While the Indian National Congress and most other political parties have proposed detailed policy measures, including the prospect of reservation for Scheduled Castes (SC) and Scheduled Tribes (ST) in the private sector, the BJP’s manifesto is curiously silent on the issue. Even the promise contained in its 2009 declaration to introduce reservation for the economically weaker general class finds no mention in this term’s version. It is likely that this decision is a product of electoral strategy. But its failure to clarify its vision is nonetheless symptomatic of a larger malaise in the Indian political sphere: a mistrust of debate subsumed by core issues of moral concern.

Arguments on reservation

The Congress’ response is also familiar: the manifesto’s silence on reservation, according to the Finance Minister P. Chidambaram has been designed to “poison” voters with a majoritarian approach. If pressed further, Mr. Chidambaram ordinarily would tell us that affirmative action is not necessarily irreconcilable with merit. Yet, what he will not tell us is why the Congress’ approach to reservation is, in the party’s belief, the only means to fulfil the fundamental right to equality. And, he will also not tell us what the Congress intends to achieve through its reservation policies: are they aimed at ensuring more than mere formal equality (which would ensure that all castes achieve equal status) or are they a means to one day achieve a society that is completely rid of the caste system?

The BJP’s prime ministerial candidate Narendra Modi’s answer to questions of whether there ought to be reservation along caste lines is similarly devious. He sings the same tune/s that he uses to counter any issue of economic inequality. According to him, the development and growth of the economy will bring with it a concomitant rise in both educational and employment opportunities, making the question of any community seeking reservation moot. But both Mr. Chidambaram’s claims about merit and Mr. Modi’s arguments about development skirt the real issue.

It is a matter of well-chronicled fact that the social and economic inequities prevalent in Indian society transcend ordinary conception. Any reasonable thinker would tell us that, as a matter of duty, our country’s resources ought to be dispersed evenly across all classes. But the argument on reservation, today, as evinced by Mr. Chidambaram and Mr. Modi’s public statements, is no longer about such considerations. The questions, therefore, are: how did we get here, and what do we do now?

Expanding reservation policy

At its inception, the Constitution envisaged very limited reservation. Articles 15 and 16, which today occupy the bedrock on which our entire policy of affirmative action rests, were meant to entrench a system where no discrimination was permissible on grounds of race, religion, caste, etc. Even clause 4 to Article 16, which permitted reservation in public employment for any backward class of citizens, was viewed as subservient to larger goals contained in clauses 1 and 2. Any such programme for reservation justified under Article 16(4) had to be shown to further the objective of ensuring equality of opportunity to all citizens. But over time, the original philosophical outlook toward affirmative action has waned.

Now, as a matter of a very specific policy of the state, not only are backward classes of citizens often identified solely on the basis of their castes, but reservation has also stretched well beyond the realm of public employment, at its first instance. These actions of the State have been brought forth either in response to particular, contrarian judgments of the Supreme Court, or in furtherance of judgments supporting the state’s larger outlook, according these programmes a constitutional sanction.

When the Supreme Court in State of Madras v. Champakam Dorairajan (1951) struck down a government policy seeking to arrange admission to engineering and medical colleges based on divisions of caste and religion, the government’s response was to amend the Constitution. Article 15(4) was introduced to allow the State to make special provisions for the advancement of socially and educationally backward classes of citizens or for the SCs and STs. Yet, this amendment did not produce an immediate change in the Supreme Court’s thinking. The court continued to hold, as it did for example in M.R. Balaji v. State of Mysore (1963), that policies of reservation are exceptional measures, requiring strict constitutional defence. It also ruled that classification of backward classes of citizens could not be based solely on the caste of the citizen; such policies, wrote Justice Gajendragadkar, might “contain the vice of perpetuating the caste themselves.”

However, in 1975, the Supreme Court finally acquiesced to the state’s ever-expanding reservation policy. In a judgment that would have widespread consequences, the court ruled that Article 16(4) wasn’t as much an exception to the general rule contained in clause 1, as it was an integral component of the right to equality, properly understood (State of Kerala v. N.M. Thomas). In other words, Article 16(1), it was held, permitted classification on the basis of caste to achieve its broad goal: equality of opportunity for each citizen, as an individual. This was further validated in Indra Sawhney v. Union of India (1992), by a nine-judge bench, which ruled that the Constitution permitted backward classes to be identified on the basis of caste. In so holding, the court provided the government the jurisprudential basis for formulating sweeping policies on reservation.

Through a series of constitutional amendments, beginning in 1995, Parliament allowed the state to make provisions for reservation in matters of promotion to SCs and STs, to carry forward any vacancies created through a failure to fill-up the reserved category from one year to the following year, and to provide specially for Other Backward Classes or SCs and STs in matters of admission to educational institutions, including in private institutions. Each of these amendments and the laws made to enforce their aims (including reservation in favour of the so-called “other backward classes”) was challenged at various stages before the Supreme Court. But, the Supreme Court, after providing Parliament the legal justification for its general policy on reservation, could not now strike down the laws that emanated as a consequence.

Political discourse vs. debate

Apart from holding these amendments to be in consonance with the Constitution’s basic structure, the court also ruled in these cases that the laws made in furtherance of these amendments, including the identification of Other Backward Classes on the basis of caste, were valid. What’s more, it found the doctrine of creamy layer, which, in principle, disallowed benefits applicable to certain groups based on their economic status, which they would have otherwise been entitled to as members of a certain caste, as inapplicable to SCs and STs. These decisions, in M. Nagraj v. Union of India and Ashoka Kumar Thakur v. Union of India, are a product of a sustained change in the court’s jurisprudential thinking on the subject. But it ought to be asked: how does the exclusion of SCs and STs from the doctrine of creamy layer fit with the purported objectives?

Unfortunately, neither the Supreme Court nor our Parliamentarians are willing to engage with these fundamental issues. There is unquestionable value in a general policy of reservation because it attacks caste-based inequities that have proved so damaging to our society; but through an ever-expanding scheme of reservation, we have lost sight of what our aims were in the first place. We, therefore, need to address the debate at a more basic level.

We need to ask ourselves, once again, whether it is equality of opportunity that we strive for, or whether we want to rid our society of the caste system. If indeed the reservation policies are aimed at achieving both these ideals, we ought to be shown proof of how the present policies are working. If Other Backward Classes have to be equated with SCs and STs, the state ought to empirically prove why the doctrine of creamy layer should be applicable to the former and not to the latter, and how such thinking links to the larger goal of ensuring a supposed equality of opportunity. We also need to ask ourselves whether these policies, as Justice Gajendragadkar suggested in 1963, have the effect of perpetuating the caste system.

Regrettably, our political discourse appears unsuited for genuine debate on such questions. If the BJP supports a change in policy, it is its bounden duty to tell us what such new policy would be, and why it would work. If the Congress believes its present policy is effective, it ought to show us how the policy fulfils the Constitution’s ideals. Instead, we are left meandering in the politics of quota and merit. Our most ingrained social inequities are, in the process, further entrenched. And as a result, the abstract ideal of equality, which the Constitution guarantees, continues to wither toward insignificance.

(Suhrith Parthasarathy is an advocate in the Madras High Court.)